The first half of 2012 was being tipped as a tough year for local fertilizer manufacturers, but the market leader Fauji Fertilizer Company (FFC) as it always does, found a way to get out of jail. The Company said, its profits for 1HFY12 increased by a significant 26 percent year on year, crossing Rs.10 billion, the highest ever half yearly profits in the Companys history. Recall that the industry urea off-take had remained low in the first quarter owing to availability of cheap imported urea, piling up inventories with the local players. Most local players, found it hard to battle against imported urea and gas curtailment at the same time, but FFC, being at an advantageous location, took the opportunity and played the master stroke. The urea giant adopted the price reduction strategy to compete with imported prices and it worked. Well placed industry sources claim FFC to have sold half a million tons of urea in June alone as a result of a reduction of over Rs.100 per 50 kg bag, resulting in a healthy top line growth. FFC and other major players in the past have been reluctant to slash prices on account of assured sales due to higher price of imported urea.1HCY12 presented the industry a different challenge, where maintaining the gross margin was no more a viable option. FFC, connected with Mari network, facing much less gas curtailment, took the initiative and boosted its revenue, even though it meant taking a hit on gross margins. Since the bulk of urea off-take is believed to have happened in June, the distribution cost reduced significantly as a percentage of sales, mainly due to considerably lower petrol and diesel prices during June. Other income, a regular contributor to the Companys bottom line, took a slight dip as dividend income from FFBL, dipped in the second quarter. Going forward, the other income is expected to remain in check as FFBL has refrained from announcing dividends of late and it will be while before it returns to its high payout of yesteryears. Going forward, FFC is all set to regain its lost gross margin during the latter half of CY!2, as feedstock gas prices are back to CY11 levels, with the withdrawal of infrastructure cess on feedstock gas. Urea off-take will pick up later in the year and FFC is well-positioned to take advantage, especially in the winters, when the peers will most likely be facing heavy gas curtailment. So its all good at FFC, and another year of record highs seems in the offing.
================================================================== Fauji Fertilizer Company ================================================================== (Rs mn) 1HCY12 1HCY11 chg 2QCY12 2QCY11 chg ================================================================== Sales 36,131 24,221 49% 24,698 13,120 88% Cost of sales 18,814 10,527 79% 13,139 5,337 146% Gross profit 17,317 13,693 26% 11,559 7,783 49% Gross margin 48% 57% -15% 47% 59% -21% Distribution cost 2,632 2,166 22% 1,292 1,148 13% Other income 2,459 2,882 -15% 319 919 -65% Finance cost 641 471 36% 363 242 50% PAT 10,335 8,189 26% 6,460 4,080 58% EPS (Rs) 8.12 6.44 5.02 3.21 ==================================================================
Source: KSE notice
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